Another important Apple technology partner is losing staff to Apple (AAPL)

• Apple is hiring staff away from Dialog Semiconductor, a British chip firm which supplies power management chips for the iPhone and iPad.
• Dialog’s shares crashed over the weekend after a report that Apple would bring some chip design capabilities in-house in 2018.
• The situation bears resemblances to Imagination Technologies, another British chip company which was sold after losing its contract with Apple.
• Dialog has acknowledged Apple could design its own chip internally but said there was no indication this would happen any time soon.

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Apple is continuing to hire away designers and engineers from one of its most important suppliers, British chip firm Dialog Semiconductor, which is currently fighting to persuade investors that its agreement with Apple is safe.

According to Business Insider’s analysis of LinkedIn profiles, around 28 Dialog engineers and designers have moved to Apple between March 2016 and now — something analysts have described as a “brain drain.” Apple is Dialog’s biggest customer, reportedly accounting for half of its revenue.

Bankhaus Lampe analyst Karsten Iltgen first spotted the flow of staff between Dialog and Apple in April this year, and concluded in a note to investors that the iPhone maker was working on its own power management chips, denting Dialog’s share price.

Dialog’s situation bore similarities with that of Imagination Technologies, another British chip supplier which was hurriedly sold off in September after losing its contract with Apple. Prior to its sell-off, Imagination also suffered a brain drain to Apple, though a spokesman described this as normal at the time.

Dialog declined to comment. A source close to the firm said the attrition rate was better than usual, and that Apple hired designers and engineers for its Munich design centre from several firms, including Dialog.

Dialog’s share price crashed again over the weekend after a Nikkei report suggested Apple would design its own power management chip for the iPhone as early as next year. That prompted Dialog’s chief executive Jalal Bagherli to acknowledge for the first time that Apple had the capability to design a power management chip internally, but that there were no outward signs it planned to do so in 2018. He said the firm wouldn’t know about its agreements with Apple for 2019 for another few months.

Dialog’s share price stands at €24.81, down 36% from €38.70 a week ago.

Dialog’s share price over the last week.Business Insider

Some analysts remain alarmed about the so-called brain drain and Dialog’s future revenues.

“This is a major disaster,” Hauck & Aufhauser Tim Wunderlich told CNN on Monday. “I would expect Dialog to experience declining sales from 2019 onward, intensifying gross margin pressure, (and) brain drain as uncertainties make the company a far less appealing employer for top talent.”

And Bankhaus’ Iltgen, who originally spotted the trend, told Business Insider: “Yesterday’s release and [conference call] marks a full u-turn in communication strategy. The company is essentially confirming everything which we had written before — and which they denied so far. Management provably lost credibility with many investors. This will take time to rebuild.”

Iltgen suggested that Dialog would maintain a relationship with Apple, but would no longer be the “single source” for power management chips.

Not everyone is so pessimistic. In a Monday note, Morgan Stanley analysts said Dialog’s revenues for 2018 and most of 2019 were safe, contrary to the Nikkei report.